Forget poor, ‘squeezed middle’ what it’s all about
National keen to shift focus away from cost-of-living crisis vis-a-vis the worst-off
The Prime Minister and her team were taken by surprise on Wednesday morning. The mild euphoria of assembled mana whenua, bureaucrats, and media at the opening of Wellington’s Transmission Gully — a project so over-hyped, oversubsidised, over-long, and over-budget, you’d be forgiven for thinking Peter Jackson had built it — can only really be understood by the sorry, weatherbeaten motorists of New Zealand’s great, shaky metropolis.
For Ka¯piti Coast residents, rightly fed up with the dangerous and unreliable road into town, which frequently grinds to a standstill at rush hour, the Gully could be life changing, giving back hours of time to frustrated commuters
It’s big news alright, and at a cool $1.2 billion it should be. But something arguably far more transformational (to borrow the prime minister’s argot) took place two days later along the very same stretch of road.
As of April 1, If you were to commute from Paekakariki to Wellington — roughly the same route Transmission Gully traverses — you’d save $125.70 a month, thanks to the Government’s half-price public transport fares if you buy a monthly commuter ticket.
If the Government decides to make the change permanent, as it has heavily hinted, that commuter would save about $1500 a year. The Government reckons the policy will cost a maximum of $40 million for the next three months, which would give it an annual estimated cost of $160m a year. This isn’t just a story in Wellington, it’s the case in every major city, including our most important, in electoral terms — Auckland — where people who buy a monthly train pass could save about $1200 a year.
As we enter another month of cost-of-living politics, Labour might point out that someone on the median income in Wellington would get $830 a year from National’s bracket creep plan, which would cost the public finances more than 10 times more than permanent half-price public transport.
You’re unlikely to hear Ardern talk about this too much, of course.
While Transmission Gully was met with two days of celebrations — Ardern spent the day after the opening talking about benefit increases at a kindergarten in view of the road, which girds Porirua like a great chip-seal halo — it was left to Transport Minister Michael Wood to launch the beginning of the half-price fares policy with a more low-key train trip from Auckland airport, with fellow MP Arena Williams.
Ardern taking a bus? Security concerns aside, you’re unlikely to see that any time soon.
While she spiritedly tried to talk up the Government’s efforts to alleviate the cost-of-living crisis — mainly changes to benefits, superannuation, the minimum wage, all of which were agreed as long ago as last Budget, but which only took effect in April — National quietly modulated the way it was selling its bracket indexation tax cut.
The promise to adjust the tax bracket thresholds to take account of inflation since 2017 was made in Christopher Luxon’s state-of-thenation speech less than a month ago. The promise is clever politics, in that it tethers what is, in essence, a tax cut to an attack on an area where Labour is weak: inflation.
But as Labour quickly pointed out, for many people on low incomes, National’s threshold changes will make little difference — as little as $2 a week at the lower end.
It’s worth asking whether the shape of those tax cuts was a strategic mistake for National.
The cuts are Transmission Gully-esque in their expense ($1.7b if implemented this year, and even more when implemented after the 2023 election), but deliver relatively little. Even someone earning $170,000 a year will only get about $20 a week. Electorally, that’s a huge amount of money to spend for relatively little gain.
The cuts only really deliver to people on incomes of more than $180,000 a year when the repeal of the 39 per cent tax rate kicks in (at its most extreme, if you were, say, the chief executive of an airline earning a $1.5 million base salary, you’d get an annual tax cut of more than $80,000, or $1500 a week).
It’s worth considering whether National could have adjusted the policy to deliver slightly bigger cuts to people on lower and middle incomes, at the cost of smaller cuts to people on higher incomes.
But this too would be relatively costly. Because more people will reap the benefits of a lower tax threshold, even small changes to lower tax thresholds cost huge sums of money. By contrast, governments can offer relatively handsome tax cuts to the small numbers of people on large incomes, at relatively low cost.
Which is perhaps why National is keen to shift focus away from the cost-of-living crisis vis-a-vis the poor, for whom Labour’s benefit changes make a much bigger difference, and towards the “squeezed middle”, for whom Labour has few answers beyond a temporary fuel excise cut and, eventually, tackling the supermarket duopoly.
This is fertile political ground for Luxon. Polls from National’s own pollster show (with a high margin of error) that people in deprived areas have not flocked to National under his leadership. Just 18.4 per cent of voters in the most deprived areas backed National in November, rising to 19 per cent in February (Labour’s support is 62 per cent). Compare that with people in moderately deprived areas where National’s support surged from 22.7 per cent in November to 45.2 per cent in February. The next election is likely a fight for these voters.
Which gets back to public transport subsidies.
The jury might be out on the extent to which increased government spending is inflationary, but there’s little question that tackling climate change through increasing the cost of fossil fuels, electricity generation, and decarbonising energy will have at least a short term inflationary effect. This will hit everyone. Indeed, the Stats NZ Household living costs survey shows inflation is already hitting households across all incomes hard right now.
The Government has a solution to some
Labour needs to find a way to make public transport a cost-ofliving solution . . . It can’t out-tax cut National.
of these problems: decarbonising your life. If you live in a city, leave the car at home, insulate your home et cetera, et cetera.
The problem here is threefold: upfront cost for households, the political cost of drastically reducing the cost of living in a city while increasing the cost of living rurally, and the political arsenic that is Government telling people the way they quite like living at the moment is not the way they can live in the future.
The Government knows this, and it probably explains why the prime minister spent days celebrating a road her party never much liked to begin with, rather than flashing her Hop card on the 6 o’clock news.
But Labour needs to find a way to make public transport a cost-of-living solution — and explain it as such to voters. It can’t out tax cut National.
In an age of war and climate-induced inflation, pretending that handouts, subsidies and tax cuts are a way out of the energy scarcity that will one day tug at the heels of our middle class is Muldoonist denialism.